southern 2006 Narrative Section

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southern 2006 Narrative Section

  1. 1. 00:00:01 • 00:00:02 • 00:00:03 • 00:00:04 • 00:00:05 • 00:00:06 • 00:00:07 • 00:00:08 • 00:00:09 • 00:00:10 • 00:00:11 • 00:00:12 • 00:00:13 00:00:14 • 00:00:15 • 00:00:16 • 00:00:17 • 00:00:18 • 00:00:19 • 00:00:20 • 00:00:21 • 00:00:22 • 00:00:23 • 00:00:24 • 00:00:25 • 00:00:26 00:00:27 • 00:00:28 • 00:00:29 • 00:00:30 • 00:00:31 • 00:00:32 • 00:00:33 • 00:00:34 • 00:00:35 • 00:00:36 • 00:00:37 • 00:00:38 • 00:00:39 SOUTHERN COMPANY 2006 ANNUAL REPORT 00:00:40 • 00:00:41 • 00:00:42 • 00:00:43 • 00:00:44 • 00:00:45 • 00:00:46 • 00:00:47 • 00:00:48 • 00:00:49 • 00:00:50 • 00:00:51 • 00:00:52 00:00:53 • 00:00:54 • 00:00:55 • 00:00:56 • 00:00:57 • 00:00:58 • 00:00:59 • 00:01:00 • 00:01:01 • 00:01:02 • 00:01:03 • 00:01:04 • 00:01:05 00:01:06 • 00:01:07 • 00:01:08 • 00:01:09 • 00:01:10 • 00:01:11 • 00:01:12 • 00:01:13 • 00:01:14 • 00:01:15 • 00:01:16 • 00:01:17 • 00:01:18 00:01:19 • 00:01:20 • 00:01:21 • 00:01:22 • 00:01:23 • 00:01:24 • 00:01:25 • 00:01:26 • 00:01:27 • 00:01:28 • 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  2. 2. of every minute, of every CONTENTS 02 LETTER TO SHAREHOLDERS 05 FINANCIAL HIGHLIGHTS 06 THE GROWING SOUTHEAST 08 MEETING DEMAND 10 CIRCLE OF LIFE 14 OUR ENVIRONMENTAL EFFORTS 16 EXPANDING OUR FOOTPRINT 18 FINANCIAL GOALS & PERFORMANCE 20 FINANCIAL REVIEW 80 BOARD OF DIRECTORS 82 MANAGEMENT COUNCIL 84 STOCKHOLDER INFORMATION
  3. 3. ...people are plugging in, turning on, and using more and more energy to live their lives. The importance of an adequate and reliable supply of energy in the U.S. is steadily growing. And, as our 21st century, high-tech, digital economy expands and our population grows, the demand for energy will be even greater. At Atlanta-based Southern Company, the premier electricity supplier to the Southeast, we’re working hard to meet this demand and to ensure that our region has the electricity that’s needed to continue to prosper. We’re also working hard to keep our costs down and to generate electricity that’s cleaner than ever before. hour, of every day... Southern Company serves 4.3 million customers in one of the nation’s fastest- growing regions. With more than 42,000 megawatts of generating capacity, and a competitive generation business, Southern Company is a major source of electricity in the southeastern U.S.
  4. 4. David M. Ratcliffe Chairman, President, and CEO 2
  5. 5. Dear Fellow Shareholders: every moment of every day, we strive to be the leader in our industry and to deliver outstanding results for our shareholders and our customers. The Southeast continues to attract people from all over the nation. high in December and closed the year with a gain of 6.7 percent. And, according to forecasts, growing numbers of people will con- Our total shareholder return was 11.7 percent. Looking at long-term tinue to migrate to the region over the next few decades. growth, we have been one of the industry’s strongest performers. At Southern Company, we work hard every minute of every day Our solid financial performance is a direct result of our con- to meet the growing electricity needs of the Southeast. We’re excited tinued commitment to keep our customers satisfied by providing about our opportunity to grow along with this region of the country, excellent customer service, high reliability, and affordable prices. and we’re poised to meet the challenges presented by this growth. Our focus on corporate responsibility also plays a significant role Every day, your company faces these challenges head-on. in our success. Southern Company employees live, work, and raise Every day, your company plans for future growth. And every day, their families in the communities we serve. So we know the im- your company sharpens its focus on its goal of being the leader in portance of being good citizens. We take pride in being involved its industry by delivering outstanding results to our shareholders in our communities. and to our customers. In 2006, we released our first Corporate Responsibility Report, In 2006, Southern Company continued to benefit from a which lays out our commitment to the communities we serve and healthy economy and population growth in the Southeast, which outlines our environmental, workplace, and community plans and drove the demand for electricity up 2.3 percent. Earnings for the actions. One of the many reasons we produced this report was to year were $2.12 a share, a decrease of 2 cents a share from 2005. explain this commitment and encourage more dialogue with our The lower year-end earnings were primarily the result of a reduc- stakeholders. Through continued open exchange, we plan to eval- tion of tax credits related to the production of synthetic fuel. In uate our progress so that we can better serve the economic health 2006, Southern Company took a series of actions to minimize and environmental well-being of the community while meeting the impact of reductions of this tax credit. Excluding the earn- the expectations of our customers and shareholders. ings from the synthetic fuel tax credit, Southern Company earned Our competitive generation business had strong results in 2006, $2.10 a share in 2006, compared with $2.03 a share in 2005. ending the year with a net income of $305 million. In 2004, we set Under current law, synthetic fuel tax credits are slated to expire a goal to grow this business to $300 million in net income by 2007. December 31, 2007. So, not only did we reach our goal a year early, we surpassed it. In Dividends were increased to an annual rate of $1.55 per share 2006, our competitive generation business added new long-term in 2006, marking the fifth straight year we’ve raised the dividend. wholesale contracts to its portfolio, extended some of its existing And our record of 237 consecutive quarterly dividend payouts contracts, acquired new capacity in Florida and North Carolina, since 1948 continued in 2006. Our stock price reached an all-time and signed agreements to construct an integrated gasification 3
  6. 6. combined cycle plant, which converts coal into clean gas that we We were fortunate last year to have a quiet hurricane season, will use to produce cleaner electricity. giving our Mississippi Power subsidiary and its employees an oppor- This competitive generation business is undergoing some tunity to recover and rebuild. You may recall that our Mississippi structural changes in 2007. In compliance with a Federal Energy service territory was devastated by Hurricane Katrina in 2005. Regulatory Commission order, we are separating this business unit Although the scars of the storm still mark the landscape, more into two distinct segments. Our embedded wholesale segment is remarkable is the outstanding performance and continued resil- being integrated into our traditional operating companies. Southern ience of our Mississippi Power employees in the wake of this un- Power continues to operate in the competitive market, focusing on precedented hurricane and ensuing recovery. I’m proud to report its low-risk strategy of owning and operating quality generation that Mississippi Power moved back into its refurbished corporate assets under long-term contracts with credit-worthy counterparties. headquarters in December. Operationally, we had an extraordinary year. In the face of I’m also extremely proud to report that we’ve achieved significant record-setting demand in the summer of 2006, our generating improvement in our No. 1 priority at Southern Company–safety. plants and power delivery systems continued to operate at record Our Target Zero safety program speaks for itself. Every second of levels of reliability. This is truly a testament to our preparedness, every minute of every day, we strive for zero accidents and injuries our employee dedication, and the investments we make in our so that our employees can return home safely to their families. system’s infrastructure. Our numbers continue to improve, but we won’t be satisfied until To ensure that we maintain this high level of reliability and meet we accomplish and maintain our goal of zero. the continued customer growth in our region, we’re embarking on And we continue to make progress in the area of attracting and the largest capital expansion in our company’s history. Over the next retaining a diverse and highly skilled work force. This is a business three years, we plan to invest $11 billion in our four traditional oper- imperative for us. We know that our ability to make sound business ating companies–Alabama Power, Georgia Power, Gulf Power, and decisions is enhanced by engaging people of diverse backgrounds Mississippi Power. Of that, $3.8 billion will be invested in and perspectives. our transmission and distribution infrastructure, and another At Southern Company, our business is generating and delivering $4.6 billion will be invested in new environmental controls and reliable electricity at the lowest possible price with outstanding cus- equipment for our coal fleet. Because coal is an abundant and tomer service. We do it with Southern Style, and we will continue cost-effective energy resource for our nation, we are finding ways our focus on making the three tenets of Southern Style–unques- to produce cleaner energy with coal. tionable trust, superior performance, and total commitment–a These expenditures will require us to increase the price of our reality throughout our business. It’s a simple business model. product. Despite periodic price increases over the years, some of Wall Street understands it and likes it. I believe it will sustain our the lowest energy prices in the nation can still be found in our excellent performance. We hope you agree. Southeast service territory. We take seriously our obligation to provide affordable prices, high reliability, and superior service to Sincerely, our customers. And our outstanding performance in these areas has helped to build constructive regulatory relationships. These relationships allow us to make new capital investments in our equipment and infrastructure, which furthers our superior opera- tional performance. We call this the “Circle of Life.” Successfully executing this long-term business model permits us to have attrac- David M. Ratcliffe tive, risk-adjusted financial returns. March 12, 2007 4
  7. 7. F I N A N C I A L H I G H L I G H TS 2006 2005 CHANGE $14,356 Operating revenues (in millions) $13,554 5.9)% $1,573 Earnings (in millions) $1,591 (1.1)% $2.12 Basic earnings per share $2.14 (0.9)% $2.10 Diluted earnings per share $2.13 (1.4)% $1.531/2 $1.471/2 Dividends per share (amount paid) 4.1)% 4.2 Dividend yield (percent) 4.3 (2.3)% 743 Average shares outstanding (in millions) 744 (0.1)% 14.26 Return on average common equity (percent) 15.17 (6.0)% $15.24 Book value per share $14.42 5.7)% $36.86 Market price (year-end, closing) $34.53 6.7)% $27,508 Total market value of common stock (year-end, in millions) $25,602 7.4)% $42,858 Total assets (in millions) $39,877 7.5)% 201,423 Total kilowatt-hour sales (in millions) 196,877 2.3)% 161,334 Retail 159,076 1.4)% 40,089 Sales for resale 37,801 6.1)% 4,322 Total number of customers–electric (year-end, in thousands) 4,248 1.7)% 2.5 2.5 15.0 25 14.36 13.55 2.0 2.0 12.0 20 2.14 2.12 2.10 2.07 2.03 2.03 1.95 11.73 1.92 1.86 11.02 1.82 10.45 1.5 1.5 9.0 15 16.05 15.79 15.38 15.17 14.26 1.0 1.0 6.0 10 0.5 0.5 3.0 5 0 0 0 0 ’02 ’03 ’04 ’05 ’06 ’02 ’03 ’04 ’05 ’06 ’02 ’03 ’04 ’05 ’06 ’02 ’03 ’04 ’05 ’06 EARNINGS PER SHARE EARNINGS PER SHARE OPERATING REVENUES RETURN ON AVERAGE EXCLUDING SYNTHETIC FUELS* COMMON EQUITY (IN DOLLARS) (IN BILLIONS OF DOLLARS) (IN DOLLARS) (PERCENT) *Not a financial measure under generally accepted accounting principles. 5
  8. 8. 00:00:01 every second Southern Company is producing enough electricity to meet the needs of every one of our customers. The Southeast is the place to be. The economy is robust. The job market is attractive. The weather is inviting. At Southern Company, we provide a reliable source of electricity, our retail prices are among the lowest in the nation, and we’re consistently rated among the best at serving and satisfying our customers. It’s no wonder there’s a steady stream of people moving to the Southeast. T H E GROWING SOUTHEAST In 2006, our customer numbers grew 1.7 percent to more than Company service territory is expected to see a population increase 4.3 million. According to forecasts, by 2030 nearly 40 percent of of 31 percent by 2030, compared with 23 percent in the nation as the population of the United States is expected to live in the South– a whole. Georgia and Florida, both within our service territory, are a 16-state region stretching from Delaware to Texas. Our Southern national leaders in attracting new residents. 6
  9. 9. As the population grows, more homes are built, more businesses open their doors, and more office buildings rise out of the ground. This growth equates to increasing electricity demand, and our job is to efficiently meet it. But the increase in the number of customers is not the only thing driving demand. Usage is growing as well. Trends show that new homes are getting larger and ceilings are getting higher, which means more space to heat and cool, and more room for electronics. The number of consumer electronics products per U.S. household nearly doubled over a 10-year period, averaging 25 products per home in 2005. From big screen TVs and in-home theater systems to computers, printers, scanners, and copiers, Americans have become technology junkies. Our job is to ensure they have an ample supply of electricity and the information needed to use it wisely. 7
  10. 10. M E E T I N G DEMAND THROUGH EFFICIENCY At Southern Company, we believe it is our business to always con- efficient with their energy use. We’re working with builders and sider the future and plan appropriately. Forecasts tell us that the developers to ensure that new homes and office buildings and population of the Southeast is continuing on a growth course.We’re warehouses are more energy-efficient than they’ve ever been. We’re taking steps now to ensure that we grow along with the region. helping our commercial and industrial customers find efficiencies Our 42,000 megawatts of capacity are serving us well right now, by calculating when they can reduce usage without sacrificing pro- and we’re making plans for additional capacity to meet future de- ductivity. And, for our residential customers, we’re finding more mand. We’re also growing something else at Southern Company. and better ways to keep their electricity costs as low as possible. We’re growing our efforts to educate customers to become more All the way down to the light bulb. 00:01:00 every minute Americans together save more than $57,000 on utility bills and enough energy to avoid greenhouse gas emissions equivalent to those from 43 cars. Thanks in part to ENERGY STAR®, a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy, we are saving money and protecting the envi- ronment through energy-efficient products and practices. 8
  11. 11. THIS LIT TLE LIGHT All across the Southern Company system, we’re asking customers prevent greenhouse gas emissions equivalent to the emissions of to “take the pledge.” We’re telling our customers that changing one 8 million cars. incandescent bulb to an ENERGY STAR-qualified compact Southern Company subsidiary Georgia Power is a leading fluorescent light bulb can save as much as $30 on energy costs driver of “Change a Light” pledges nationwide. The ENERGY over the life of the bulb. In fact, switching to an ENERGY STAR “Change a Light” program is a nationwide campaign to STAR-qualified bulb in the five most used fixtures in a home build awareness about energy efficiency and to educate consumers can make a real impact. If every American household made that on ways to save electricity and lower their energy costs. switch, we’d save about $6.5 billion each year in energy costs and Every light changed is a step in the right direction. 9
  12. 12. CONSTRUCTIVE HEALTHY CAPITAL REGULATION SPENDING CUSTOMERS HIGH RELIABILITY LOW PRICES HIGH CUSTOMER SATISFACTION W E C ALL IT THE CIRCLE OF LIFE At Southern Company, everything revolves around the customer. Over the next three years, we plan to invest $3.8 billion in our Experience tells us that when we provide our customers with ex- transmission and distribution infrastructure to ensure that we con- cellent service, high reliability, and affordable prices, everything tinue our excellent record of reliability and meet the growing en- else falls right into place. ergy needs of the Southeast. That’s called healthy capital spending. Our customer service employees continue to be recognized But reliability is about more than infrastructure. It’s also about both regionally and nationally for their excellent results. The 26,000 dedicated employees who make it run every second of American Customer Satisfaction Index has listed Southern Com- every minute of every day. It’s about the customer-care represen- pany as the top-ranking U.S. electric service provider in customer tative who answers the call and determines what we can do to satisfaction for seven consecutive years. And we have maintained meet a customer’s need. It’s about the lineman who understands constructive relationships with regulators because they know we the importance of quickly restoring power so that customers are work hard to satisfy our customers. Through these relationships, comfortable in their homes, and so that businesses can continue we have been able to maintain healthy capital spending. And that to operate. It’s about the plant worker who gives 100 percent each is one of the keys to our reliability. day to ensure the power’s there at the flip of a switch. PICTURED, CLOCKWISE FROM TOP CENTER: Jill Davis, customer service center representative, Gulf Power; Paul Hunt, field service representative, Gulf Power; Kathy Ames, customer service supervisor, Gulf Power; Kathy Taylor, appliance sales, Alabama Power; Charles Smith, operations engineer, Georgia Power; Janice Pickich, customer service representative, Mississippi Power; Gloria Tatum, customer service representative, Mississippi Power; Kevin Grigsby, business specialist, Alabama Power; Collie Williams, area manager, Georgia Power; Michelle Fernandez, service consultant, Georgia Power; Jennifer Gregg, scheduling analyst, Alabama Power; Mike Robinson, distribution lineman, Mississippi Power; Vickie Price, customer service representative, Georgia Power; John Anderson, transmission lineman, Alabama Power; Steven Faulkner, market field representative, Georgia Power; Ted Gaillard, Customer Choice project manager, Georgia Power; Ronda Cherry, sales and service representative, Alabama Power. 10
  13. 13. 01:00:00 every hour Southern Company’s customer service representatives answer an average of 1,769 customer calls. Because of our dedicated employees, we continue to lead customer satisfaction ratings both regionally and nationally. Our outages are shorter and fewer than ever before. Our generation fleet is running more reliably than any fleet in the nation. From our line crews and plant workers to our engineers and customer-care representatives, every hour of every day our employees serve our customers in some way. Our employees are the backbone of the “Circle of Life.” 11
  14. 14. 24:00:00 every day Southern Company’s nuclear plants contribute to our environmental efforts by avoiding 131,103 tons of carbon dioxide emissions. By maintaining fuel diversity and seeking efficiencies in our system, we’re keeping our retail rates as com- petitive as possible for customers. As we plan for growth, our strategy is to maintain and grow a reliable and affordable supply of energy by evaluating our options and researching, developing, and deploying technolo- gies that will allow us to meet our long-term environmental objectives. Located near Baxley, Georgia, Plant Hatch (pictured right) is powered by boiling water reactors and has a capacity of more than 1,800 megawatts. A D IVERSIFIED PORTFOLIO New nuclear power is one of the primary resources we’re evaluating generation. So you can see that we believe nuclear is a viable op- for the future. It’s a safe, reliable, cost-effective source of energy with tion for our future. little impact on the environment. Here in the Southeast, we’ve had We’re also growing our efforts in the area of renewable energy. positive responses from our regulators when discussing the possibil- We’re evaluating and testing commercialized renewable technolo- ity of adding more nuclear units. And we’ve received strong com- gies, including geothermal and solar. And we are industry leaders munity support as well. Those factors, combined with our years in the evaluation of co-firing biomass, having researched the co-firing of experience in successfully building and operating nuclear facili- of sawdust, tree wastes, and switchgrass. Because of our desire and ties, make nuclear power an attractive option for future growth. ability to produce energy from such renewable resources, we’re In 2006, we submitted the first of two applications to the now offering our customers in the Southeast “green energy” rates Nuclear Regulatory Commission seeking approval to add two for electricity produced with renewables. new nuclear units at our Plant Vogtle site in Georgia. We’re also Because of its abundance and affordability, and state-of-the- involved in NuStart, a consortium of electric utilities that has been art technologies that lower its environmental impact, keeping coal awarded funds from the U.S. Department of Energy for the de- in the nation’s generation mix is essential. Southern Company is velopment of a Combined Construction and Operating License focused on the research and development of new advanced-coal for a new nuclear plant. And we’re working with other companies technologies that will lead to lower emissions and cleaner produc- to explore the economic viability of partnering on new nuclear tion of electricity and help maintain coal as a future fuel source. COAL NUCLEAR Developing and installing new advanced-coal technologies Nuclear power is re-emerging as a viable way to meet will enable us to continue to use coal in a cost-effective, new demand for electricity with the added benefit environmentally sensitive manner. of zero greenhouse gas emissions. 12
  15. 15. NATURAL GAS HYDRO Despite price fluctuations, electricity generated by In addition to providing dependable and reasonably-priced natural gas remains an option for the future. electricity, hydro also provides acres of water and miles of shoreline for our public to enjoy. 13
  16. 16. 007:00:00:00 every week for the next three years, Southern Company plans to invest an average of $29 million installing new environmental controls on our coal plants to further reduce emissions. G ROW I N G O U R EFFORTS TO REDUCE OUR IMPACT At Southern Company, we invest and manage more research dol- We’re not alone in our search for solutions. In our latest efforts lars than many utilities in the industry, finding and implementing at the PSDF, we’ve partnered with the U.S. Department of Energy ways to minimize our impact on the world around us. (DOE) and with KBR on the advancement of new integrated Our efforts are paying off, too. Since 1990, we have reduced gasification combined cycle technology, which converts coal into emissions of nitrogen oxides and sulfur dioxide by 33 percent, cleaner, usable gas. And now we’ve taken this technology a step while generation has increased by 37 percent. Additional reduc- further. Later this year, as part of our partnership with the DOE tions are planned over the next decade, and mercury emissions and the Orlando Utilities Commission, we plan to break ground will also drop as new technologies are put in place. near Orlando on a commercial-scale version of a gasification tech- We know that electricity is both our business and our responsi- nology developed by Southern Company and others. It’s called bility. We understand the need for the development and deployment Transport Integrated Gasification (TRIG™). TRIG technology is of technologies that will change the way we generate electricity. capable of producing energy from low-rank coals, which account for At the Power Systems Development Facility (PSDF) near Wilsonville, half of worldwide reserves. Our TRIG plant, currently scheduled to Alabama, where John Northington (pictured) is an engineer, we begin operations in 2010, is expected to be one of the cleanest, have been heavily involved for many years in the research and most efficient coal-fueled plants in the world. And, that’s how development necessary to accomplish this change. important coal is. 14
  17. 17. At Southern Company, we’re committed to growth. Growth of our region, growth of our company, and growth of the natural world around us. Deep in the Apalachicola National Forest in the Florida panhandle thrives the largest population of the endangered red-cockaded woodpecker. Here, with support from Southern Company and the National Fish and Wildlife Foundation, biologists like Joel Casto safely trap a few of the birds each year and move them to other areas. By adding new woodpeckers to these sites, population growth is much more likely to occur. In many of these areas, we’re also helping restore the bird’s habitat by planting longleaf pine seedlings and improving management of the forests that the woodpecker and many other uniquely Southern creatures need to survive. Southern Company has committed more than half a million dollars to support the recovery of the red-cockaded woodpecker and its longleaf pine habitat. We look forward to helping them grow.
  18. 18. 16
  19. 19. 030:00:00:00 every month Southern Power manages 9,500 megawatts of wholesale generating capacity to serve its customers. The Rowan County Energy Complex (pictured) in Salisbury, North Carolina, has a total of 986 megawatts of generating capacity. Fueled primarily by natural gas, Rowan is similar in technology to plants we already own and operate, making it a good strategic fit for Southern Company. E X PA NDING OUR FOOTPRINT Our Southern Power subsidiary experienced significant growth in 2006, signing new long- term power agreements, extending existing agreements, and expanding its footprint with the purchases of the DeSoto County Energy Complex in Florida and the Rowan County Energy Complex in North Carolina. The new facilities are located in growing markets that are key to Southern Company’s long-term growth strategy. Southern Power–which serves municipal utilities, electric cooperatives, and investor-owned utilities and competes on the open market–is a key growth component of the company. About 84 percent of Southern Power’s 6,700 megawatts of capacity is under contract through 2015. Southern Power also manages another 2,800 megawatts of capacity through other resources.
  20. 20. 365:00:00:00 every year for the past 59 years, Southern Company has paid a quarterly dividend equal to or higher than the previous quarter’s dividend. A F ORMUL A FOR SUCCESS Our business is electricity–generating it and delivering it reliably returns to you, our shareholders. Our goal is regular, predictable, at the lowest possible price and with outstanding customer service. and sustainable earnings growth. Our business model is simple Our traditional operating companies–which serve our 4.3 million and transparent. Our management team is focused on shareholder customers in Alabama, Florida, Georgia, and Mississippi–provide value. Our credit rating is among the best in the industry. And we the majority of our revenues and earnings. We continue to see have a history of providing attractive total shareholder return with steady growth in demand and customers in our service territory. one of the lowest risk profiles in our industry. Southern Power is a key to the long-term growth of the company, At Southern Company, our financial goals are to grow our and even this business has a low-risk strategy–owning and operating earnings per share by an average of 5 percent over the long term, quality generation assets under long-term contracts with finan- keep our return on equity in the top quartile of electric utilities, cially strong counterparties. grow our dividends consistent with maintaining a payout ratio Everything we do, every second of every minute of every day, of 70 percent to 75 percent, and maintain our financial integrity. is done so that we can deliver outstanding customer service, reliabil- This is a formula for financial success. ity, and affordable prices. This should result in superior, risk-adjusted We look forward to growing into the future. 18
  21. 21. $200 $193.24 $183.46 $150 $134.99 $100 • Southern Company • S&P Electric Utility Index • S&P 500 Index $50 ’01 ’02 ’03 ’04 ’05 ’06 FIVE-YEAR CUMULATIVE STOCKHOLDER RETURN 2001 2002 2003 2004 2005 2006 Southern Company $100 $117.64 $131.50 $152.70 $164.27 $183.46 S&P Electric Utility Index 100 84.94 105.39 133.30 156.84 193.24 S&P 500 Index 100 77.90 100.25 111.12 116.57 134.99 This performance graph compares the cumulative total stockholder return on Southern Company (SO) common stock with the Standard & Poor’s Electric Utility Index and the Standard & Poor’s 500 Index for the past five years. The graph assumes that $100 was invested on December 31, 2001 in Southern Company’s common stock and each of the above indices and that all dividends were reinvested. $1,800 SO: $1,602 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 TWENTY-YEAR CUMULATIVE STOCKHOLDER RETURN This graph compares a $100 investment in Southern Company (SO) common stock made December 31, 1986 and held for 20 years (approximately the length of time our average shareholder has owned SO stock) against the same type of investment in each of the other large-cap utilities followed by Value Line. 19
  22. 22. B OA R D O F D I R E C TO R S JUANITA POWELL BARANCO DORRIT J. BERN DAVID M. RATCLIFFE FRANCIS S. BLAKE THOMAS F. CHAPMAN H. WILLIAM HABERMEYER JR. DONALD M. JAMES ZACK T. PATE J. NEAL PURCELL WILLIAM G. SMITH JR. GERALD J. ST. PÉ 84
  23. 23. B OA R D O F D I R E C TO R S THOMAS F. CHAPMAN J. NEAL PURCELL DAVID M. RATCLIFFE Retired Chairman and Chief Executive Officer Retired Vice Chairman-Audit Operations Chairman, President, and Chief Executive Officer Equifax Incorporated (information services, KPMG (audit and accounting) Southern Company data analytics, consumer financial products, Duluth, Georgia Atlanta, Georgia and transaction processing) Age 65; elected 2003 Age 58; elected 2003 Board committees: Audit (chair) Atlanta, Georgia Other corporate directorships: Other corporate directorships: Age 63; elected 1999 CSX Corporation Board committees: Governance (chair), Synovus Financial Corporation, Compensation and Management Succession Dollar General Corporation, JUANITA POWELL BARANCO Other corporate directorships:None Kaiser Permanente Health Care and Hospitals Executive Vice President and Chief Operating Officer Baranco Automotive Group (automobile sales) H. WILLIAM HABERMEYER JR. WILLIAM G. SMITH JR. R etired President and Chief Executive Officer Chairman, President, and Chief Executive Officer Morrow, Georgia Progress Energy Florida (energy) Capital City Bank Group Incorporated (banking) Age 58; elected 2006 St. Petersburg, Florida Tallahassee, Florida Board committees: Audit Age 64; elected 2007 Age 53; elected 2006 Other corporate directorships: Board committees: Nuclear Board committees: Compensation and Cox Radio Incorporated Other corporate directorships: Management Succession, Finance Other corporate directorships: Raymond James Financial Incorporated DORRIT J. BERN Capital City Bank Group Incorporated Chairman, President, and Chief Executive Officer Charming Shoppes Incorporated (retail) DONALD M. JAMES Chairman and Chief Executive Officer Bensalem, Pennsylvania GERALD J. ST. PÉ Vulcan Materials Company Former President Age 56; elected 1999 (construction materials) Ingalls Shipbuilding Board committees: Finance (chair), Governance Birmingham, Alabama Retired Executive Vice President Other corporate directorships: Charming Age 58; elected 1999 Litton Industries (shipbuilding) Shoppes Incorporated, OfficeMax Incorporated Board committees: Compensation and Pascagoula, Mississippi Management Succession, Finance Age 67; elected 1995 FRANCIS S. BLAKE Other corporate directorships: Board committees: Compensation and Chairman and Chief Executive Officer Vulcan Materials Company, Wachovia Corporation Management Succession (chair), Governance The Home Depot Incorporated (retail) Other corporate directorships: None Atlanta, Georgia Age 57; elected 2004 ZACK T. PATE Chairman Emeritus Board committees: Audit World Association of Nuclear Operators Other corporate directorships: (nuclear power industry) The Home Depot Incorporated Atlanta, Georgia Age 70; elected 1998 Board committees: Nuclear (chair), Audit Other corporate directorships: None 85
  24. 24. M A N AG E M E N T C O U N C I L J. BARNIE BEASLEY JR. W. PAUL BOWERS DAVID M. RATCLIFFE ROBERT G. DAWSON ANDREW J. DEARMAN III DWIGHT H. EVANS THOMAS A. FANNING MICHAEL D. GARRETT G. EDISON HOLLAND JR. ANTHONY R. JAMES CHARLES D. MCCRARY SUSAN N. STORY ANTHONY J. TOPAZI 86
  25. 25. M A N AG E M E N T C O U N C I L DAVID M. RATCLIFFE ANDREW J. DEARMAN III ANTHONY R. JAMES Chairman, President, and Chief Executive Officer E xecutive Vice President and Chief Transmission Officer E xecutive Vice President and President of Shared Services Ratcliffe, 58, joined the company as a biologist with Dearman, 53, joined the company as a junior engineer James, 56, joined the company as a safety and health Georgia Power in 1971 and has been in his current with Alabama Power in 1975. He was named to his supervisor with Georgia Power in 1978. He began his position since 2004. Previously, he was president and current position, overseeing the Southern Company current job, overseeing the centralized corporate func- CEO of Georgia Power, Southern Company’s largest transmission system, in 2001. Previously, Dearman was tions that provide services to the operating subsidiaries, subsidiary, from 1999 to 2004 and served as president senior vice president and chief technical officer for in 2006. James previously was president and CEO of and CEO of Mississippi Power from 1991 to 1995. Southern Energy (now Mirant Corporation) and held Savannah Electric from 2001 to 2005. He has held Ratcliffe has held executive and management positions executive positions in power generation and delivery, executive, management, and supervisory positions in in the areas of finance, external affairs, fuel services, as well as serving at Alabama Power as a division vice power generation, plant maintenance, plant manage- operations and planning, and research and environ- president and in various construction-related jobs. ment, employee benefits, wholesale power marketing, mental affairs. and safety and health. DWIGHT H. EVANS Executive Vice President and President of External Affairs J. BARNIE BEASLEY JR. CHARLES D. MCCRARY C hairman, President, and Chief Executive Officer, Evans, 58, joined the company as a design engineer Executive Vice President Southern Nuclear and environmental engineer with Georgia Power in McCrary, 55, joined the company as an assistant project Beasley, 55, joined the company as a cooperative educa- 1970. He has held his current position, which includes planning engineer with Alabama Power in 1973. He tion student with Georgia Power in 1969. He has been responsibility for environmental policy, regulatory and began his current job as president and CEO of Alabama in his current job as president and CEO of Southern legislative affairs, and corporate communication, since Power in 2001. Previously, McCrary was chief production Nuclear since 2004 and became chairman in 2005. 2001. Previously, Evans was president and CEO of Mis- officer for Southern Company and president and CEO Beasley served in various electrical distribution roles sissippi Power and held executive positions in external of Southern Power. He has held executive positions at before transferring to Plant Vogtle in 1980 and has held affairs and governmental affairs. Alabama Power and Southern Nuclear as well as various several executive and management positions since then jobs in engineering, system planning, fuels, and envi- in the company’s nuclear power system, which includes ronmental affairs. THOMAS A. FANNING six nuclear reactors. E xecutive Vice President, Chief Financial Officer, and Treasurer SUSAN N. STORY Fanning, 50, joined the company as a financial analyst President and Chief Executive Officer, Gulf Power W. PAUL BOWERS President, Southern Company Generation in 1980. He has held his current position, which also Story, 47, joined the company as a nuclear power plant Bowers, 50, joined the company as a residential sales includes responsibility for corporate strategy, since 2003. engineer in 1982. She has held her current position, representative with Gulf Power in 1979. He has been He previously was president and CEO of Gulf Power leading Southern Company’s subsidiary serving in his current position, with overall responsibility for and served as chief financial officer at Georgia Power northwest Florida, since 2003. Previously, Story was fossil and hydro generation and operations, Southern and Mississippi Power. Fanning has held several officer executive vice president of engineering and construction Power, engineering and construction services, and positions in the areas of finance, strategy, international services for Southern Company Generation and Energy environmental affairs and research services, since 2001. business development, and information technology. Marketing. She has held executive and management Bowers served as president and CEO of Southern Power positions in the areas of supply chain management, from 2001 to 2005 and president and CEO of Southern real estate, corporate services, and human resources. MICHAEL D. GARRETT Company’s former UK subsidiary from 1998 to 2000. Executive Vice President Garrett, 57, joined the company as a cooperative edu- ANTHONY J. TOPAZI cation student with Georgia Power in 1968. He began P resident and Chief Executive Officer, Mississippi Power ROBERT G. DAWSON P resident and Chief Executive Officer, SouthernLINC his current job as president and CEO of Georgia Power Topazi, 56, joined the company as a cooperative educa- Wireless and Southern Telecom in 2004. Previously, Garrett was president and CEO tion student with Alabama Power in 1969. He began his Dawson, 60, joined the company as a cooperative of Mississippi Power. He has held executive positions current job, leading the Southern Company subsidiary education student with Southern Company Services at Alabama Power in the areas of customer operations, that serves southeast Mississippi, in 2004. Topazi in 1964. He has held his current position, heading the regulatory affairs, finance, and external affairs, as well previously was executive vice president for Southern company’s telecommunications subsidiaries, since 1995. as serving as Birmingham Division vice president. Company Generation and Energy Marketing and also Previously, Dawson served as vice president of Latin served as senior vice president of Southern Power. America and Caribbean assets for Southern Energy He held various positions at Alabama Power, including G. EDISON HOLLAND JR. (now Mirant Corporation) and held executive and E xecutive Vice President, General Counsel, Western Division vice president and Birmingham management positions in generation, power delivery, and Corporate Secretary Division vice president. and fuel services. Holland, 54, joined the company as vice president and corporate counsel for Gulf Power in 1992. He was named to his current position, which includes serving as the chief compliance officer, in 2001. Previously, he was president and CEO of Savannah Electric from 1997 to 2001. Holland has served as vice president of power generation and transmission at Gulf Power. 87
  26. 26. S TO C K H O L D E R I N F O R M AT I O N TRANSFER AGENT AUDITORS SCS Stockholder Services is Southern Company’s transfer agent, divi- Deloitte & Touche LLP dend-paying agent, investment plan administrator, and registrar. If you Suite 1500, 191 Peachtree St. NE have questions concerning your Southern Company stockholder account, Atlanta, GA 30303 please contact: INVESTOR INFORMATION LINE By courier By mail For recorded information about earnings and dividends, stock quotes, SCS Stockholder Services SCS Stockholder Services and current news releases, call toll-free 866-762-6411. 30 Ivan Allen Jr. Blvd. NW P.O. Box 54250 11th Floor-Bin SC1100 Atlanta, GA 30308-0250 INSTITUTIONAL INVESTOR INQUIRIES Atlanta, GA 30308 Southern Company maintains an investor relations office in Atlanta, By phone 404-506-5195, to meet the information needs of institutional investors By e-mail 9 to 5 ET and securities analysts. stockholders@southernco.com Monday through Friday 800-554-7626 ELECTRONIC DELIVERY Any stockholder may enroll for electronic delivery of proxy materials by logging on at www.icsdelivery.com/so. STOCKHOLDER SERVICES INTERNET SITE Located within Southern Company’s Investor Relations Web site at http://investor.southerncompany.com, the Stockholder Services site pro- CERTIFICATIONS vides transfer instructions, service request forms, and answers to frequently Southern Company has filed the required certifications of its chief asked questions. Through this site, registered stockholders may also executive officer and chief financial officer under Section 302 of the securely access their account information, including share balance, mar- Sarbanes-Oxley Act of 2002 regarding the quality of our public disclosures ket value, and dividend payment details, as well as change their account as exhibits 31(a)1 and 31(a)2 to Southern Company’s Annual Report mailing addresses. on Form 10-K for the year ended December 31, 2006. The certification of Southern Company’s chief executive officer regarding compliance with the New York Stock Exchange (NYSE) corporate governance listing SOUTHERN INVESTMENT PLAN The Southern Investment Plan (SIP) provides a convenient way to purchase standards required by NYSE Rule 303A.12 will be filed with the NYSE common stock and reinvest dividends. Access the Stockholder Services following the 2007 Annual Meeting of Stockholders. Last year, Southern Internet site to review the Prospectus and download an enrollment form. Company filed this certification with the NYSE on June 1, 2006. DIRECT REGISTRATION ENVIRONMENTAL INFORMATION Southern Company common stock can be issued in direct registration Southern Company publishes a variety of information on its activities (uncertificated) form. The stock is Direct Registration System (DRS) eligible. to meet the company’s environmental commitments. It is available online at www.southerncompany.com/planetpower/ and in print. To request printed materials, write to: DIVIDEND PAYMENTS The entire amount of dividends paid in 2006 is taxable. The board of Chris Hobson directors sets the record and payment dates for quarterly dividends. Senior Vice President, Research and Environmental Affairs A dividend of 38 3/4 cents per share was paid in March 2007. For the 600 North 18th St. remainder of 2007, projected record dates are May 7, August 6, and P.O. Box 2641 November 5. Projected payment dates for dividends declared during the Birmingham, AL 35203-2206 remainder of 2007 are June 6, September 6, and December 6. COMMON STOCK Southern Company common stock is listed on the NYSE under the ticker ANNUAL MEETING The 2007 Annual Meeting of Stockholders will be held Wednesday, symbol SO. On December 31, 2006, Southern Company had 110,259 May 23, at 10 a.m. ET at The Lodge Conference Center at Callaway stockholders of record. Gardens, Highway 18, Pine Mountain, GA 31822. 88
  27. 27. GLOS S A RY ... people are plugging in, turning on, and using more and more energy to live their lives. The importance of an adequate and reliable supply of energy in the Book Value–a company’s common stock equity as it appears on a balance Megawatt–one thousand kilowatts. A measurement of electricity usually sheet, equal tosteadily growing. And, as our 21stused when discussing large amounts of generatingeconomy U.S. is total assets minus liabilities, preferred stock, and intangible century, high-tech, digital capacity. assets such as goodwill. Book value per share refers to the book value of a expands and our population grows, the demand for energy will be even greater.agency Nuclear Regulatory Commission (NRC)–an independent federal company divided by the number of shares outstanding. that formulates policies and develops regulations governing nuclear reac- Co-Firing–a process of converting biomass to electricity by adding bio- tor premier electricity orders to licensees, andthe At Atlanta-based Southern Company, the and nuclear material safety, issues supplier to adjudicates mass as a supplemental fuel to coal, thus reducing the amount of coal legal matters. used to generate electricity. working hard to meet this demand and to ensure that our region Southeast, we’re Payout Ratio–the percentage of earnings that is paid to shareholders in Combined Construction and Operating License (COL)–a license granted theto prosper. We’re also working hard has the electricity that’s needed to continue form of dividends. by the Nuclear Regulatory Commission that gives the licensee approval to both keep our costs down and to generate electricity that’s cleaner than ever before. to construct and operate a nuclear unit. Public Service Commission (PSC)–the authority that regulates utilities at the state level. Competitive Generation Business–market-based wholesale electricity Retail Markets–markets in which energy is sold and delivered directly to supply business that, primarily through long-term contracts, serves cus- the ultimate end-users of that energy. tomers who can choose their suppliers based on price, reliability, capacity, Return on Equity–a measure of profitability, calculated as net income and other market needs. divided by shareholders’ equity. Dividend Yield–the annual dividend income per share received from a hour, of every day... Risk-Adjusted Return–a measure of return that factors in the risk (expec- company divided by its current stock price. ted variability in returns) of the investment relative to other stocks. Earnings Per Share–net income divided by the average number of shares Total Shareholder Return–stock price appreciation plus reinvested divi- of common stock outstanding. dends. (The distribution of shares of Mirant Corporation stock to South- Embedded Wholesale–wholesale assets and contracts associated with our ern Company shareholders is treated as a special dividend for purposes of traditional operating companies. calculating Southern Company shareholder return.) Federal Energy Regulatory Commission (FERC)–an independent agency Traditional Operating Companies–the part of our business that gener- within the U.S. Department of Energy that, among other things, regulates ates, transmits, and distributes electricity to commercial, industrial, and wholesale sales of electricity and transmission in interstate commerce. residential customers in most of Alabama and Georgia, the Florida pan- Generating Capacity–the amount of energy that can be produced using handle, and southeastern Mississippi. all of our power generation facilities. Wholesale Customers–energy marketers, electric and gas utilities, Market Value–what investors believe a company is worth, calculated by municipal utilities, rural electric cooperatives, and other entities that buy multiplying the number of shares outstanding by the current market price power for resale to retail customers. of the company’s shares. MAJOR SUBSIDIARIES & BUSINESS UNITS SOUTHERN COMPANY Alabama Power 30 Ivan Allen Jr. Blvd. NW Southern Power 601 Pennsylvania Ave. NW Georgia Power Atlanta, GA 30308 Southern Nuclear Suite 800 South Gulf Power 404-506-5000 SouthernLINC Wireless Washington, DC 20004 Mississippi Power www.southerncompany.com Southern Telecom The 2006 annual report is submitted for shareholders’ information. It is not intended for use in connection with any sale or purchase of, or any solicitation of offers to Southern Company serves 4.3 million customers in one of the nation’s fastest- buy or sell, securities. growing regions. With more than 42,000 megawatts of generating capacity, Writing & Project Management: Terri Cohilas. Financial Review: Rhett Donaldson. and a growing competitive generation business, Southern Company is a major Design: Leap Communications, Atlanta, GA. Major Photography: James Schnepf. source of electricity in the southeastern U.S. Printing: Lithographix, Los Angeles, CA.

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